National Motorists Association Blog

The Electric Car Sinkhole Gets Deeper

In just a few months from now, it will be $2,500 easier to “buy” a new electric car. I put “buy” in quotes because in fact, other people will be paying a good chunk of the purchase price — to the tune of a $10k direct cash payment (it is euphemistically called a “tax credit”) per car, courtesy of The Man With The Plan. (But without much understanding of economics or engineering.)

A line item snugged deep within Barack Obama’s 2013 federal budget — which hasn’t passed yet and won’t be passed until after the (s)election this November — will up the existing electric lemon inducement from the current $7,500 per car to $10,000 per car. This means the subsidy payout alone on something like a new Chevy Volt will be almost as much as the total cost (without any subsidy) of a decent little economy runabout such as the 2012 Nissan Versa.

And the government giveaway will be immediately available, too — dangled in front of “buyers” (cough) “at the point of sale, making it transferable to the dealer … allowing consumers (italics mine) to benefit when they purchase a vehicle rather than when they file their taxes.”

Well, yes, they will be consuming . . . other people’s money. A tremendous boatload of it. How much is a tremendous boatload, exactly? Well, if you assume 10,000 electric lemons, that’s $100 million bucks. And Obama’s stated goal is to “…put one million (italics mine) advanced technology vehicles on the road by 2015.”

You do the math.

Don’t want to? Here, I’ll do it for you: It’ll come to about $10 billion — if Obama’s goal of one million electric lemons is realized. That’s just under 10 percent (in inflation adjusted dollars) of what it cost to put Neil Armstrong on the Moon. Back in ’69, at least, the American people got something for their money. After all, Apollo 11 did make it to the Moon — and back. Most electric cars can’t make it to the store — and back.

Problem is, even a $10,000 per car federal giveaway — $10 billion thrown into the wind — might not be enough to do the trick.

$7,500 per car sure hasn’t.

Each Volt — which has an MSRP sticker price of $39,145 — costs GM about $89,000 to build. So GM is losing — roughly — $50,000 per car. That’s a helluva way to do business. It might make more sense just to build a fire with all that money. At least some heat — as opposed to hot air — could be gotten out of it.

Even with the existing $7,500 tax credit and sweetheart lease offers as low as $199 per month designed to “move product,” not much product has been moving. As of mid-September, year-to-date Volt “sales” have yet to reach 14,000 — just a bit shy of the projected 40,000 GM anticipated.

And how about those jobs the Volt was supposed to confect? GM has had to idle the production line where the Volt is (well, was) built — and “temporarily” lay-off 1,300 workers.

What’s shocking is that GM — apparently — wasn’t able to anticipate any of this. It does not require the proverbial rocket scientist.

So, are the guys in charge stupid? How else to explain their inability to anticipate that a car that costs more than $33,000 — that’s after the current $7,500 tax subsidy — and which will still cost $30,000 after the pending $10,000 subsidy or as much as an entry-level Lexus or BMW — might not be very appealing to people concerned about paying $3 and change for a gallon of gas?

People who, you know, are concerned about spending money — unlike GM and Obama.

Well, that may be just the point. They’re not stupid. It’s simply that it’s not their money. It’s yours. Always more where that came from.

So, they don’t care that the Volt — and the rest of them — fail, economically speaking. Functionally, too. Though interesting as technology demonstrators, they still can’t go nearly as far — without lots of hassle — as the most humble non-electric new car.

Perhaps a car like the Volt will pay for itself down the road, in the form of reduced operating costs (well, except for the cost of electricity and that $2,000 charging station you”ll need to have installed in your garage). But even assuming the Volt and its kind are cheaper to drive, long term — and that’s by no means certain or even probable — they still cost Lexus-BMW money up front. Even with the $7,500 subsidy. Even with the pending $10,000 subsidy. And people in a position to buy a Lexus or BMW want… a Lexus or a BMW. Not a Chevy.

And those who aren’t in a position to afford a Lexus can’t afford this Chevy.

Same problem with the Nissan Leaf electric car. It’s not selling well, either. Could it have anything to do with the car’s $35,200 sticker price? Even taking $10k off the top, a Leaf still costs about $15k more up front than the Versa sedan — and the $10k-ish Versa can be driven 300-plus miles non-stop whereas the Leaf stops — for hours — after about 70 miles.

It’s an economic Catch 22 — and ought to be an obvious one.

If money’s tight, you don’t spend $30,000 on anything you don’t absolutely have to spend it on. Certainly not an indulgence such as a brand-new car. Even if it’s free to operate it, you still have to buy it. And if the car in question costs $30k — remember, that’s after the proposed $10k discount — that’s still $30,000 out of pocket. Anyone who got through sixth grade maff can see it’s probably smarter to buy a $10,000 new car like the Versa — or better yet, a perfectly serviceable $6,000 or so used car. If you’re trying to avoid the poorhouse, the last thing you want is a car payment for the next 5-6 years.

Unless, of course, you like being poor.

Hence, it’s no surprise — or ought not to be a surprise — that the typical Volt “buyer” (according to GM CEO Dan Akerson) is someone earning $170,000 per year. Someone, in other words, who doesn’t need to worry much about the cost of gas. Or the cost of cars. Someone, in other words, who can afford an expensive toy. Unfortunately for GM — and for us — there are only so many such people. The mass market GM needs to make a car like the Volt economically viable doesn’t exist — because it cannot exist.

It is an oxymoron.

People who need something affordable to drive don’t buy $30,000 toys. Which is why, Mr. President, the Volt and the Leaf aren’t selling.

The whole thing’s a disaster of Edsel-esque proportions.

GM has thrown more than $1.2 billion — remember, much of this is being our $1.2 billion, via the bailout — at the Volt. And GM can’t give the things away — literally. The two-year $199/month lease deal GM recently put on the table out of sheer desperation to get at least some of these things off the dealer’s lots — and maybe save a little face — means there are people driving around in $89,000 Volts for less than $5,000 for two years — on your nickel and mine.

And it’s still insufficient inducement to “move product,” for all the obvious reasons already discussed.

But unlike the Edsel fiasco, GM insists on throwing good money after bad. And unlike Ford, which lost its own money on the Edsel, this time, it’s our money being squandered. (At least Nissan isn’t getting bailout money on top of the electric car subsidy money.)

There is apparently no limit to it, either.

When $10,000 per car proves inadequate — which it will — the subsidy will probably be increased, perhaps to $15,000. Maybe they will decide to just pay people to take the cars home. Nothing down — and nothing per month. Just hand them over to anyone who wants — and give these “buyers” a monthly stipend to cover the cost of electricity. Maybe then they’ll “sell.”

None of this, of course, would ever have happened if moral hazard were operative. If GM and Nissan and everyone else had had to put their own money (and their own corporate reputations) on the line, the Volt, the Leaf and all the others would never have been produced. Not as production cars, at any rate. Maybe as concept cars — to show what might be doable and to gauge market reaction. But never in a million years would GM have put one billion on the line — except for the fact that the one billion was not GM’s to put on the line. Or at least, not GM’s to worry about losing. If the Volt fails — and so far, it has failed catastrophically — it won’t be GM left holding the bag.

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4 Responses to “The Electric Car Sinkhole Gets Deeper”

This tech will not be viable for at least the next 40-50 years if ever. And on what we got for our money in the moon shots that could really make electric cars reality, can you say fuel cell!!! Fuel cells are the only way I ever see electric cars making sense. But the cost today is so high for fuel cell tech not to make this even an option for the foreseeable future.

If we really practically wanted to make america energy efficient diesel tech is the only practical way!!

Thanks Marvin Odum!
We really need to keep repeating that $89,000 lie. They ain't smart enough to know the difference between fixed and production costs, so they won't catch us.

That whole "can't get to the store and back" line was a great way to spin the Volts 35 mile all-electric limit. That was pure genius, subverting its "best available" fuel economy of 93mpg and 370 mile range on a tank of gas.

Way to make the volt look like a yuppie toy too! Surely all them rich people making $170k/yr are stupid with their money, and wouldnt be leasing the Volt because it's a screaming hot deal to pay less than $10k for a 3-yr lease on a new electric car.

BTW, how is that new well in the artic doing? We might have to drill one of those ourselves.

there are consumer websites which rank best cars by cost/mile. electrics like the leaf/volt, and hybrids like the Prius finish just a few pennies ahead of the best gas and diesel cars. so with their limited range and high purchasing cost taken into effect, electric cars are barely viable right now. which doesn't really justify their high expense that well, and then you evaluate the big taxpayer subsidies and say wow. if you have to finance one of these cars to try to pay it off, it becomes an even sillier game, which is why you see so few people buying them. luckily interest rates in the US are very low – but what if they weren't. you'd see even fewer buyers as you see now. if they had a range of 200 miles at the same cost, this would change quite a bit, but 100 miles and limited recharge stations plus slow recharge times is nuts.

I'm not anti- electric car, anti- hybrid, anti-alternative fuel vehicles (NGV etc), anti- mass transit (I love the concept and enjoy using local light rail… which my local government and area 'planners' refuse to build) or anything else. it's all numbers to me. I take the most practical + appealing + cost effective car I can afford and take an interest in owning it. like most Americans I also live in an area where owning a car is a necessity to live and work.

So that's the party line from a republican oil executive.
GM seems to be the ONLY car company that can't make an electric vehicle! The problem is leadership, or its lack, in Motown.
The conveniently missing information has to do with the COMPLETE package, not just GM and the oil industry! Hybrids & electrics are easier on the environment, easier on peoples health, & easier on infrastructure. The result, LOWER costs to the government, read taxpayer.
In addition, this points out a MAJOR problem in the US; a total lack of concern over consequences! Hybrids & electrics mean LOWER future costs at a small investment today. Too many people today are only interested in today, they would destroy the future to pad their wallet right now! This, unfortunately, has been happening for years. The results have only come to roost lately. The banking mess, manufacturing decline, car company bail-out, etc. are all the result of lusting for money today with no concern for tomorrow.